All posts by Clifford E. Kirsch, Editor

Eversheds Sutherland With more than 25 years of experience, Cliff regularly counsels clients on the design and distribution of investment products including wrap-fee programs and other advisory products, mutual funds, bank collective investment funds and insurance products. He also focuses on issues related to the design and implementation of compliance programs at financial services firms.

A Tale of Two Enforcement Actions Against Compliance Officers: An analysis applying the NSCP Firm and CCO Liability Framework

From Brian Rubin and Amy Albanese in this month’s column for NSCP Currents:

Many compliance officers believe they have targets on their backs. Indeed, according to industry-wide surveys conducted by the National Society of Compliance Professional (NSCP), 72% of compliance professionals are concerned that regulators have expanded the role of compliance officers and the scope of their responsibilities in imposing personal liability and 63% believed that personal liability will be imposed even where compliance did not participate in the violations caused by the company or other executives. Is it any surprise that compliance officers seem to believe that regulators look at them the same way that Mrs. Gamp viewed the living young man:  “He’d make a lovely corpse.”

Read more here.

Analysis of FINRA Disciplinary Actions Shows Huge Surge in Financial Sanctions

By reviewing FINRA’s monthly disciplinary reports, press releases and online database, Eversheds Sutherland (US) Partners Brian L. Rubin and Adam C. Pollet identified the following key takeaways:

  • In 2021, fines and restitution spiked despite a decrease in the number of cases compared with 2020
  • FINRA continues to target specific areas, such as anti-money laundering violations, which for the sixth year in a row resulted in the largest amount of fines.
  • Regulators appear to be gearing up for actions involving RegBI/Form CRS

Read the full study here.

How NSCP CCO Framework Could Have Altered FINRA Charges

Every year, FINRA brings hundreds of cases, many alleging that firms have inadequate policies and procedures. In the overwhelming majority of those cases, the Chief Compliance Officer (CCO), who FINRA considers to be “a primary advisor to the member on its overall compliance scheme and the particularized rules, policies and procedures that the member adopts,” is not charged.  With regard to Anti-Money Laundering (AML) cases, AML compliance officers (AMLCOs) are also infrequently charged. Questions that always follow such cases include the following: When are violations “firm issues” and when should the compliance officer get charged?

Despite the relatively small percentage of cases brought against compliance officers, they are (unsurprisingly) concerned about being in the cross hairs of regulators, and being subject to personal liability. Compliance officers are usually the firm’s central point of communications with regulators, responsible for responding to regulatory inquiries, producing documents, and answering questions. In many investigations, they must provide on-the-record testimony, even if the case does not directly involve their core functions.

Due to these concerns, on January 10, 2022, the National Society of Compliance Professionals (NSCP) proposed a “Firm and CCO Liability Framework” (NSCP Framework) to “provide guidance to regulators, chief compliance officers (CCOs), and firms regarding perceived or actual CCO liability.”  The NSCP Framework developed nine questions to be “considered by regulators where a compliance failure may have occurred,” to evaluate CCO liability.

Read more here.


Marketing Rule Compliance Checklist for investment advisers

To facilitate compliance with amendments to Rule 206(4)-1 (Marketing Rule) under the Investment Advisers Act of 1940, we developed a Compliance Checklist.  The date for compliance  is November 4, 2022 – by which time registered investment advisers must adopt and implement new policies and procedures, and build the operational and supervisory systems necessary for compliance.

  • The Marketing Rule modernizes the regulatory regime governing investment adviser marketing practices and revises standards that investment advisers have been operating under for decades.
  • Compliance with the Marketing Rule will require significant changes to investment advisers’ marketing practices, including use of testimonials, endorsements, or third party ratings and investment advisers’ use of performance information.
  • The Compliance Checklist is intended to serve as a helpful guide for legal and compliance personnel responsible for developing compliant policies, procedures, and systems that account for these sweeping changes.

You can access it here.

Huckleberry FINRA and Life on the MissiSECippi: Mark Twain, FINRA, SEC, CFTC and NASAA Enforcement Actions (November and December 2021)

From Brian Rubin and Amanda C. Oliveira in this month’s column for NSCP Currents:

Samuel Langhorne Clemens, d/b/a Mark Twain, was the author of many outstanding (and often humorous) books and short stories that had good guys (e.g., Huck, Jim and Tom), bad guys (e.g., Pap Finn; the Duke and the Dauphin, who were the equivalent of the 19th century boiler room fraudsters), self-regulators (e.g., Aunt Polly and the Widow Douglas), an actual Judge (well, fictional, but you know what we mean) (Judge Thatcher, father of Becky), and sanctions (the Duke and the Dauphin are tarred and feathered – a bit different from being censured or ordered to cease and desist). In other words, his stories sound a lot like some of the securities enforcement cases we regularly read.

Read more here.